Information Disclosure and Demand Elasticity of Financial Products: Evidence from a Multi-Country Study

According to The Smart Campaign’s Client Protection Principles, all socially responsible financial institutions should be committed to transparency of pricing and other terms and conditions of all their financial product offerings by communicating “…clear, sufficient and timely information in a manner and language clients can understand so that clients can make informed decisions”.

Failure to follow this principle can lead to a decrease in customer uptake from the lower income segments as customers may feel intimidated by the complexity of marketing information explaining the various products. In addition, even if the customer has no trouble understanding the terms and conditions, the advent of new digital-only channels may necessitate the need for condensed yet comprehensive disclosures so that they are accessible on even a basic phone.

Most financial service providers understand the balance they have to strike between simplifying disclosures for clients so that they are understandable and legible and ensuring that they allow customers to make informed financial decisions. A recent study helps shed more light on this by evaluating the extent to which simplified and standardized disclosures can help customers more effectively comparison shop for credit products and make more informed financial decisions.

One of the recommendations for regulators includes not only standardizing the content of the disclosures but also the standardizing the format of the disclosures. The Bank of Ghana was cited as one regulator that has recently made headway in mandating this kind of standardization. In addition, another important take-away for regulators is how to set up a laboratory-based approach for experimenting with different designs of financial disclosure initiatives.

For further insights, the working paper is available on CGAP’s website here.